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Murdoch Board’s Crisis Meeting

News Corp.'s much-maligned board of directors will meet face to face Tuesday for the first time since the company's ethics scandal broke. Nick Summers on Rupert Murdoch's test in Los Angeles.

News Corp.’s board of directors will meet in Los Angeles Tuesday in the first face-to-face gathering of its members since an ethics scandal erupted in the media company’s United Kingdom division more than a month ago.

While board members have held frequent conference calls to stay abreast of the widening crisis—which has so far resulted in resignations, arrests, the closure of a newspaper, a scuttled $12 billion deal, and nearly universal condemnation of the company’s practices—tomorrow is the first chance for the group of 16 to test their loyalties in person, and determine what further actions, if any, News Corp. will take to address the scandal.

The boards of most publicly traded companies are elected by shareholders and represent their interests, hiring and firing CEOs and charting strategy; independent directors are brought in from the outside to add perspective and accountability. News Corp., though, employs a dual-class stock structure that concentrates voting power in the hands of chairman and CEO Rupert Murdoch. That means he effectively chooses the board, and even most of its independent directors have spent their careers under Murdoch, are close friends, or are otherwise beholden to him.

Tuesday’s meeting will determine whether the control Murdoch exerts over his board is still total, or whether the company’s independent directors will push for change. On July 19, those nine directors announced that they had retained lawyers with expertise in criminal law and the Foreign Corrupt Practices Act, which applies to American companies that break laws overseas. The directors’ personal liability is limited, corporate-governance experts say, but defending against legal action would still be costly.

"I think, sadly, they will publicly circle the wagons, but that there will be a major confrontation between genuine, objective independent directors interested in sharing the true facts about the past while correcting risk going forward, and those running a containment effort," says Jeffrey Sonnenfeld, senior associate dean of the Yale School of Management. A News Corp. spokesman did not answer questions about Tuesday’s meeting.

News Corp. is set to announce its year-end financial figures Wednesday, giving investors an updated look at the health of the film and broadcasting divisions, which provide most of the company’s profits, as well as that of the newspaper units. In recent years the newspapers have produced only modest revenue, and many analysts advocated for spinning them off even before the phone-hacking scandal broke in early July. Shares of the company have dropped from $18.54 to $15.17 since then, amid a falling Dow.

"I think, sadly, they will publicly circle the wagons,” says Jeffrey Sonnenfeld, senior associate dean of the Yale School of Management.

News Corp. announced Friday afternoon that Elisabeth Murdoch, Rupert’s daughter, would not join the board as expected. "Elisabeth Murdoch suggested to the independent directors some weeks ago that she felt it would be inappropriate to include her nomination to the board of News Corp at this year’s [meeting]," director Viet Dinh said in a statement. News Corp.’s $674 millon acquisition of Shine Media, Elisabeth’s production company, is the subject of a lawsuit by investors that accuses Rupert Murdoch of nepotism and misuse of company funds.

Deputy COO James Murdoch, who until the ethics scandal was widely believed to be the leading candidate to succeed his father as chairman and CEO one day, survived his own boardroom drama in late July, when the directors of British Sky Broadcasting agreed to keep him as their CEO. News Corp. owns a controlling stake in the company, but was forced to abandon a bid to purchase the remaining shares when phone-hacking revelations made it politically unviable. Two former News Corp. executives have accused James Murdoch of giving misleading testimony to Britain’s Parliament, threatening his ascension within his father’s company.